If we have predictable, systematic mistakes in vision, then
what about decisions about money, health care, etc?

1.2 defaults

effective organ donation rates by country because of default
policies

choice architecture

influenced by

environment

defaults

complexity

path of least resistance

create stories to justify actions

branded or generic drugs

campaign was not successful to convert customers to generic

looked like they hate generics

forcing choice caused most to switch to generic, looks like
they like them

xxxxxxxxxxxx??

jams

6 jams vs 24 jams

more jams, more approach

less jams, more purchase

if wanting to make employee not save for retirement

make it opt in

long, complex form

stress importance of decision

1.3 Do We Know Our Preferences?

Experiment

asked person to list 3 or 10 reasons they love significant
other

asked how much loved

those asked 3 declared more lovens

people who were asked 10 fell short, felt stuck, and
questioned themselves

not 10 reasons to buy BMW

just before teacher evaluations Dan asks students to list 15
ways to improve, they get stuck, and evaluations improve

1.4 choice sets and relativity

how often do you floss your teeth

scale#1 0 to >9 more per day: answer on left, think I am
below the norm/bad

scale#2 0 to >9 more month : answer on right, think I am
doing well

then ask whether to call dentist

financial advisor asks to think about retirement

#1: think about bad finacial situation

#2: vacation in bahamas

ask risk to invest

a momentary mindset can have a long-term effect

decoy effect aka asymmetric domminance

two or three choices

free vacation to Rome

free vacation to Paris

free vacation to Rome, but coffee is not free

adding “minus” option makes comparison easy. Otherwise

economist.com subscriptions

web $59

print $125

print and web $125

MBA students chose 16%, 0%, 84% when given three

when option removed, new choses were 68% and 32% (choices
reversed)

it is hard to make evaluations

decisions are influenced by choice sets

Darwin Economy (book), Robert Frank

biggest lion seal gets to mate

#2 biggest doesn't mate much

goal for lion seal is to be slightly bigger

big seals die from heart disease and hurt females

race for better position can threaten whole system

This happened in housing market in US. Good schools are in
good neighborhoods. People push to better homes leading to fights
and divorce (?).

Study of physical attraction

who do you want to date?

decoy person introduced “slightly uglier”

when going to bar, bring wingman who is slightly uglier

1.5 long-effects of decisions

how should we value the price of coffee? If pleasure is more
than cost, buy. Otherwise, not.

self-herding=tendency to follow the same decisions we have
made in the past

scenario: A person sees two restaurants with zero people, so
he chooses one. The next person sees one restaurant with zero and
another with one person, so he follows the one. Etc.

scenario: 15 years ago used to paying $0.40 for coffee at
Dunkin Donuts. By chance walk into Starbucks. Although shocked at
price, too tired to walk to Dunkin, so pay $2.50. The next day walk
by, remember action (not emotion), and do it again. I did it
yesterday, and I make great decisions, so it must have been good.

“We remember our actions far better than our transient
donuts.”

Price anchor experiment with SSN and products

People did not think the SSN experienced their prices

relative price comparisons of products in the same category
remained fix: people bid more for expensive wine than cheap wine,
more for keyboard than mouse

the first decision becomes an anchor that influences future
decisions

Tom Sawyer: can make something negative into positive

some people pay to sleep in jail like a vacation

some people pay to pretend to be farmer, squash wine

experiment: poetry, prices were coherent after the good/bad
decision

why doesn't $0.40 Dunkin Donuts influence Starbucks? SB
differniated its brand, so they seem like separate categories: do
not sell donuts, single-bean coffee, sold french press,

People compare within categories. For example, don't say
“for the difference in price between these wines, I could buy $4
of milk?”

People don't compare entrees do desserts, etc

After years of making differentiation, SB can eventually
sell muffins and donuts

Conrad Lawrence, duckling start following first figure
[imprinting]

first iPhone initially was $600, quickly lowered to $400, so
relative prices can be to others in market or used to be in market
[the $600 iPhone no longer available]

iPad price follows iPhone

other tables follow iPad

initial decisions are very important

production introductions are important

1.6 learning from our mistakes

“What a piece of work is man. How noble is reason.” -
Shakespeare

three main lessons

we have many decision biases

our intuitions are often wrong, and we don't recognize our
faults

we need to rely on empirical evidence from experiments to
accurately analyze our behavioral (analogy to measure table in
visual illusion)

FDA requires rigorous experimentation before drug can be put
on market

still, cough medication for children turned out to be bad
idea

some back surgery turned out to be useless

physicians think they know what is good, but intution is
not good enough

“we should test government and business policies before
implementing them”

memento mori: remember we are mortal (limited)

computer hackers break down procedures into discrete, exact
steps. They figure out which points are best to intervene

Dan's old nurse didn't want to pull off bandages slowly
because it would be uncomforable for her

doubt your intuitions

experiment

week 1: Special guest: Gavan Fitzsimons: Unconscious consumer

backlash/psychological reactance: when freedom is
restricted, fit hard to get it back

He wanted 2L coke, store was out, offered 2x1L for same
price, he went far in cold rain to get it

this affected his consumption behavior

some people when they hear name of loved one (e.g., parent
or spouse) will do the opposite of what that person wants (e.g.,
work hard), even unconsciously

he triggered this subliminally

some people build up resistance to messages such as “work
hard” or “eat healthy” and do opposite

he found sometimes more effective to sublimilly trigger
“exercise” than “eat healthly” because of backlash habit

brief brand exposure

people commonly briefly exposed to many brands

chose Apple and IBM

same product category, equally well known, equally
respected

subliminally exposed

thought Apple associated with creativity

people exposed to Apple were more creative than IBM or
neutral

13:00 should be paranoid about people changing behavior?

He thinks pepsi exposure

(14:20) Be strategic about brands and consumption objects
you surround yourself with

for swimmer who wants to swim faster, wear same parka as
Michael Phelps. At first, it will feel silly.

Eli Finkel: the delusion of romantic self-insight

assumption of online dating: discern from profiles who is
romantically compatible

this sounds good (if true)

if not true, harmful

are there sex differences in desired?

Previous research

Everyone wants warm and kin dpartner

Men want looks

Women want earning

research paradigms behind this knowledge

based on hypothetical

evaluating photographs

what about after met potential partner face to face?

Speed dating

12 men and 12 women went on 4 minute dates

a week earlier they fulfilled survey

showed same preferences in survey

however face-to-face the sex differences disappeared

meta-analysis consistent: sex difference is not important

do people know what they want?

(10:24) “ignoring sex differences, do people who believe
they value a certain characteristic actually prize it more than
others do?”

to what insight do we have into what motivates romantic
interest?

Regardless of stated preferences, people acted the same

people are complicated (many dimensions) and requires
recipricol relationship, so looked next at cereals

with sugar in cereals, people behaved consistently with
preferences

so something special about dating domain

maybe different in marriage, so sample 500 single people
age 41, follow up 2.5 years later, reported on current or desired
partner

recommends meeting face to face, even briefly, instead of
focusing on online dating

office hours 1

1:23 Rationality & Irrationality

not crazy vs normal

economic definition of
rationality

people have complete and
transative preferences

known preferences in sorted
order

no violation of transitivity:
if like A more than B, B more than C, don't like C more than A

economics is descriptive and
prescriptive (for government, etc.)

if assumption of economics is
violated, then recommendations may not be valid

second version: we don't
understand what drives our behavior

we are likely to make mistakes

in standard economic theory,
people should not be altrustic

if people think they are
driven by logic instead of emotions, people will be trapped

26:50 If you were to design a wellness program, would you
fine people for engaging in unhealthy behavior or pay them for
being healthy?

Loss aversion

short term or long term?

When punishment goes away, reward behaviour continues

37:24 In terms of a nonprofit asking for charitable
donations, would it be more effective to see the smiling faces of
those who have received aid or the suffering faces of those who
need aid?

#2 Sony for $1000 and $300 for only CDs and DVDs to spend
or Pioneer for $1000

In the first case the money could have been spent on
anything, but people preferred the Sony in #2.

When made concrete in domain (CDs, DVDs), people got
excited because easier to imagine.

What would you do for a $3 capuccino instead that you
wouldn't do for $3 cash?

We place a higher value on specific items that the
monetary value of those items

2.2 relativity

we often think of money in
relative rather than in absolute terms

examples

most people would walk 3 blocks
to save $8 on pen, but not $8 on $1000 camera

Adding $2k to $40K car to get
leather vs $2K to $500 office chair

renovations involves many quick
decisions with large sums of money

Would you rather make $90K in
company where people make $90K to $100k (you are the lowest) or
paid $85K where people make $65K to $85K (you are a the top, but
make less)?Most people choose first but realize they would be
happier in second

Diminishing returns: $ amount vs
psychology intensity

2.3 the pain of paying

pain: seeing money disappeared
at same time as consumption

“pain of paying” magnified
when our feelings about spending money are coupled with consumption

Paying $0.50 per bite: save
money, but lose fun

Going on vacation: paying ahead
of time or paying when you get off the boat. Financially better is
latter but less fun.

people over 20 hours were
constrained by marginal cost, would use more

people under 19 were not
constrainted, would not use more

they planned for small increase

actually demand dramatically
increased (4x)

before watching the usage clock
was annoying

2.4 mental accounting

in companies money is assigned
to departments is not fungible (each department cannot give to
other)

(https://en.wikipedia.org/wiki/Fungibility
Fungibility is the property of a good or a commodity whose
individual units are capable of mutual substitution, such as crude
oil, shares in a company, bonds, precious metals, or currencies.)

we assign money to categories

example of losing either $100 or
$100 opera ticket

assigning money to categories
controls hows we feels

unassigned money feels
differently

what happens when you get money
back? Gift certificate or return policy

paid $5000 to give workship
either 6 months in advance or when you arrive. Easier to spend in
second case because connected to trip. In first case part of
general wealth.

two
interpretations: CBA (there was no cost) or social proof (people
like me are cheating)

so
second variation actor asks “can't I just say I solved
everything?” reduces cost but does not give example of cheating:
cheating decreased

in third
variation student wore outfit from rival school (other social
group/outgroup). He walked away with money. Cheating decreased.

What
about personality traits?

Are
creative people better at rationalizing (tell better stories)?

Creative
people cheated more

Creativity
enhancing exercises, increased cheating slightly

only 12
people cheated a lost costing $15, while $36K lost to 18K people
who cheated a little

think
about rules that help people

submit
office hours 4/13/2013: The reading assignments seem too good to be
true: all the experiments verify the hypotheses. Hypothetically if
your experiment were to fail would you omit it from a paper (say,
10-20% of the time?--joking), not publish the paper, or publish the
failed experiment?

pp3.3
conflicts of interest

COA is
fundamental issue in dishonesty

wouldn't
like judge who gets paid 5% of verdict, about what about mechanics,
lawyers, government, financial advisors

sunshine
policy: disclose conflict of interest

experiment

advisor
and advisee

advisor
sees jar of money closer than advisee

#1:
closer to real value, both got paid more

#2: COA:
advisor got paid more as advisee overestimated

#3:
sunshine policy: advisee discounted advice but not enough

doctor
advised Dan to get black tots tatoos on burned side of face to look
like stubble

Dan
trusted this doctor, worked with him a lot

Dan
asked for pictures

what
happens when hair grows white

laser

Doctor
gave him guilt try “do you want to look assymetrical?”

deputy
told Dan he was looking for third subject for academic paper

temptation
to remove drunk guy from study

easy to
rationalize

OK not
to have drunk guys, but must enforce the rule before the study or
before looking at data

experiment
artwork sponsored gallery mri

3.4
Cheating Over Time and Across Cultures (10:42)

count
dots left or right

paid 10x for right answer

change from cheating a little
to a lot

at some point cheat too much,
can't feel good about self

mess up diet for day and say
“I'll start diet on Monday”

what would it take to reset
fudge factor and stop cheating

Catholic confession

in classical economics,
absolution of confession means you should cheat more

confession adds to cost (have
to talk to someone about)

or, feel pure and don't want
to disturb feeling of purity

he found no difference all
countries he tried

culture context does matter for
bribery, infidelity, etc, but his experiments were non-cultural

in other countries he adjusts
payment, four questions answered = 1 glasss of beer

Washington DC, congressional
staffers

bankers cheated more

Special Guest: Peter Ubel:
Medical Decision Making Gone Wild

Story about chemotherapy and
luekemia

medical decisions are unique,
patients have not made these decisions before

People can adapt: e.g., dialysis
patients are not less happy

high stakes: life of death
decisions

to people they feel like they
have to do something, even if it seems to defy logic

doctors overstimate chance of
survival

10:00 (skip video)

Nina Mazar: Do Green Products
Make us better people: how good deads can create a license misbehave
and be more selfish